Warning on UK value-based pricing

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An analysis of proposals for UK drug pricing reform has argued that while switching to value-based payments (VBP) makes sense, it could swell the NHS’s already burgeoning medicines bill.

The proposals, from the UK Office of Fair Trading (OFT), were published today in the Journal of Health Economics, and were analysed by Professor Karl Claxton, of the University of York’s Department of Economics and Related Studies and Centre for Health Economics.

Professor Claxton agrees with the OFT proposals in principle, but says the way the system was implemented would be crucial to its success.

In February this year the UK drug industry was rocked by an OFT report claiming the NHS was paying too much for branded drugs, and that radical reform of the pricing system was needed to claw back much-needed funds. At the time the OFT noted that the NHS spent some £8bn a year on branded medicines, and had identified “a number of drugs where prices are significantly out of line with patient benefits”.

The OFT’s proposals for change centred on a shift from the current “profit-cap and price-cut” Pharmaceutical Price Regulation Scheme, where companies were free to set their own prices “within very broad profit constraints”, to a “patient-focused value-based pricing scheme, in which the prices the NHS pays for medicines reflects the therapeutic benefits they bring to patients”.

According to the OFT, this would enable the NHS to gain greater value for money from its existing drug spend, freeing up £500m that could be used more effectively, “giving patients better access to medicines and other treatments which they may currently be denied”.

Although Professor Claxton supports the move, he warns that VBP “with an inappropriate threshold for cost-effectiveness, or an inappropriate pricing structure, could lead to technologies being adopted at prices where their benefits, in terms of health outcome, do not offset the health displaced elsewhere in the NHS – a situation in which the NHS is damaged rather than improved by innovation”.

If such factors are in place, however, he believes emphasis on cost-effectiveness could be a powerful incentive for companies to take a closer look at this aspect while pushing their products through development, and this could also provide a better chance of ultimately making it onto the NHS’s product menu.

Unsurprisingly, the OFT report was met with a barrage of criticism from many factions of the industry. The Association of the British Pharmaceutical Industry “strongly refuted” claims that the NHS paid too much for its drugs, and warned that a system of product-by-product price setting of new medicines when they were launched, favoured by the OFT, “has resulted in significant delays for patients waiting for innovative treatments in some other countries”.